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Microsoft Corp. (MSFT)

Q3 2015 Earnings Conference Call

April 23, 2015 5:30 PM ET

Executives

Chris Suh – General Manager, Investor Relations for Microsoft

Satya Nadella – Chief Executive Officer

Amy Hood – Chief Financial Officer

Frank Brod – Chief Accounting Officer

John Seethoff – Deputy General Counsel

Analysts

Brent Thill – UBS

Philip Winslow – Credit Suisse

Keith Weiss – Morgan Stanley

Rick Sherlund – Nomura

Mark Moerdler – Bernstein

John DiFucci – Jefferies

Walter Pritchard – Citi

Heather Bellini – Goldman Sachs

Mark Murphy – JPMorgan

Presentation

Operator

Greetings, and welcome to the Microsoft Third Quarter Fiscal Year 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

At this time, I’ll turn the call over to Chris Suh, General Manager, Investor Relations for Microsoft. Thank you, Chris. You may begin.

Chris Suh

Thank you. Good afternoon and thank you for joining us today. On the call with me today are Satya Nadella, Chief Executive Officer; Amy Hood, Chief Financial Officer; Frank Brod, Chief Accounting Officer; and John Seethoff, Deputy General Counsel. On our website, microsoft.com/investor, we have posted our press release and a slide deck that provides a summary of our results this quarter.

Unless otherwise specified, all growth comparisons we make on the call today relate to the corresponding period of last year. For selected metrics on the call and in other earnings materials, we have also provided growth rates in constant currency. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations.

Additionally, any mention of operating expense refers to segment operating expenses as defined in the footnote of our 10-Q and includes research and development, sales and marketing and general and administrative but excludes integration and restructuring charges.

We will post the prepared remarks to our website immediately following the call until the complete transcript is available. Today’s call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website until April 23, 2016.

During this call, we will be making forward-looking statements, which are pretty predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today’s earnings press release, in the comments made during this conference call and in the Risk Factors section of our Form 10-K, Form 10-Q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement.

And with that, I’ll turn the call over to Satya.

Satya Nadella

Thank you, Chris. Good afternoon, everyone. Today, I’ll focus my remarks on our three business areas: Cloud, Windows and Devices. Next week at Build, our developer conference, I’ll share more about our ambitions and how our next-generation platforms will empower every person and organization.

This quarter, we delivered $21.7 billion in revenue, an increase of 6% year-over-year or 9% in constant currency. We are seeing the impact of foreign exchange, geopolitical trends in certain geographies and product transitions. We’re taking steps to respond quickly and adjust our plans as needed while we continue to move forward in our transformation.

Overall, I’m pleased with our business performance. More importantly though, it’s clear that we are well on our way to transforming our products and businesses across all of Microsoft. The early signs are evident in how our customers are using our products, which I’ll share throughout my remarks today. Our momentum in the cloud is a highlight. Increasingly, customers are choosing Microsoft cloud services to transform their own businesses, going beyond just moving existing workloads to the cloud. These results showcase our ability to transform and perform simultaneously.

With that in mind, I’ll walk you through the quarter, starting with our Cloud business. At the core of our results this quarter is incredible growth across a growing portfolio of cloud services. Our commercial Cloud business is a source of strength driven by Office 365, Azure and Dynamics CRM. Our commercial cloud annualized run rate now stands at $6.3 billion, marking the seventh consecutive quarter of triple-digit revenue growth.

Office 365 is clearly a key growth driver. Like any cloud service, we track how people are actually using it and we are proud that Office 365 is a vibrant, active service. Right now, there are nearly 50 million Office 365 monthly active users inside businesses. Exchange Online alone sees about 60 billion requests per day from all connected clients, about 70 billion transactions or user actions and there are 830 million meetings a month created in Office. And we’re increasing our Office value proposition for businesses with new mobile device management capabilities built into Office 365 and through our continued commitment to customer data compliance and security.

We released new versions of Office Dells for mobile devices, and earlier this month, we rolled out Skype for Business to the Office 365 customers worldwide. Finally, in anticipation of the release of Windows 10, we have announced a preview of new touch-first Office universal app. Small and medium-sized customers are adopting Office 365 at a continued rapid pace, led by our more than 65,000 Office 365 partners. Thirty telecommunications companies are already offering 365 to small and medium-sized customers, including some of the largest in the world. In Q3, we announced a new partnership with T-Mobile to bring Office 365 to more customers and enhance the partnership with GoDaddy.

Read the rest of this transcript for free on seekingalpha.com